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In view of the increasing importance of the services sector and to encourage banks to lend more to this sector, the Reserve Bank of India has decided to do away with the per borrower loan limits to Micro/ Small and Medium Enterprises (Services) for classification under priority sector lending.
So far, loans to Micro/ Small and Medium Enterprises (Services) up to ₹5 crore and ₹10 crore, respectively, were classified as priority sector lending (PSL).
Since the per borrower loan limits to Micro/ Small and Medium Enterprises (Services) have been removed, all bank loans to MSMEs engaged in providing or rendering services as defined in terms of investment in equipment under the MSMED Act, 2006, will qualify under priority sector without any credit cap, the RBI said in a notification.
According to the MSMED (Micro, Small and Medium Enterprises Development) Act, 2006, in the case of the services sector, micro and small enterprises are entities where the investment in equipment does not exceed ₹10 lakh and more but not exceeding ₹2 crore.
A medium enterprise is an entity where the investment in equipment is more than ₹2 crore but not exceeding ₹5 crore.
Priority Sector lending usually includes lending to segments such as agriculture; micro, small and medium enterprises; export credit; education; housing; social infrastructure; and renewable energy.
PSL target
Meanwhile, the RBI said foreign banks with 20 or more branches will have to meet sub-targets for lending to small and marginal farmers and micro enterprises from FY2018-19, according to the Reserve Bank of India.
This decision has been taken after undertaking a review of the priority sector lending profile of the foreign banks, and to create a level-playing field within banks.
According to RBI data, as on March-end 2017, only three foreign banks had 20 or more branches in India – Standard Chartered Bank (100 branches), Citibank N.A.(40), and Hong Kong and Shanghai Banking Corporation Ltd. (26).
The RBI said the sub-target of 8 per cent of Adjusted Net Bank Credit (ANBC), or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher, will become applicable for the foreign banks with 20 branches and above for lending to small and marginal farmers from FY 2018-19.
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